John Springford / Jun 2025
Image: Shutterstock
Britain’s electricity industry is congratulating itself on the outcome of the UK-EU summit last month, with good reason. It was a sector that had been largely forgotten in the Brexit wars – the UK left the EU’s single electricity market and the emissions trading system, and while the Trade and Co-operation Agreement foresaw new arrangements to deal with the problems that caused, not much happened for four years, partly because of the row over Northern Ireland. Now, the UK and EU promised to work together on relinking UK and EU emissions trading systems and recoupling the UK electricity market with the EU one.
Re-integration of emissions trading was foreseen before the summit, with the British government being unusually explicit that it was pursuing that objective. In January 2026, the EU’s carbon border adjustment mechanism (CBAM) will become fully operational, and electricity imports from the UK would face charges unless the carbon price on either side of the Channel and Irish Sea were the same. That would be a bad outcome for both sides – including the EU, because imported electricity from Britain would become more expensive, and unnecessarily so, given the rapid decarbonisation of Britain’s electricity system.
But recoupling of electricity markets was more of a surprise: the Commission had been against it, because it amounts to ‘cherry-picking’ of the single market for electricity, without the other freedoms (goods, services, capital, people) being in force. It appears that the EU decided that there was a cherry to pick for themselves: according to my analysis of UK and EU forecasts, North Sea offshore wind will provide 6% of all electricity generated in the two jurisdictions by 2050, and ensuring that electrons flow as easily as possible is a good thing for everyone.
The principle of electricity trading is simple (while the engineering and market design is nightmarishly complex). When there is a glut of generation in one market, prices fall, but across Europe as a whole it’s better if that electricity is flows to places where there’s not enough generation, and prices are high. That means that average power prices are lower for everyone, because wind and solar plants don’t have to be paid to turn off power when supply outstrips demand. And without higher trading capacity, electricity generation would be expensive as renewables rise in the mix: more baseload and backup power in the form of nuclear, hydro, battery storage, and potentially hydrogen and gas with carbon capture will be needed if many more interconnectors between markets aren’t built.
This principle should be extended within Europe’s nation-states, too. Germany and Britain have large, single wholesale electricity markets. Scotland and northern Germany have much more wind power than the south of their respective countries – and electricity demand is higher in southern regions. By breaking up these wholesale markets into smaller ones, with prices that reflect local generation and consumer demand, electricity would flow more efficiently from low to high-priced regions within countries, and also between them. The differences in prices would also create strong incentives to build more generation in regions where demand frequently outstrips supply: southern Britain and southern Germany need a lot more solar, which is likely to become the cheapest form of power even in relatively cloudy Britain.
Recoupling the UK and EU electricity markets will require the UK to sign up to a range of EU rules, including in some politically sensitive areas, like state aid, since the electricity sector receives a lot of it. It will take time to negotiate – probably longer than linking the emissions trading systems. But there are lessons to be learned from Brexit for all European countries: allow prices to reflect local capacity for generation, and facilitate trade between local markets as much as possible. That will deliver net zero cheaply and rapidly.
